Federal Reserve Governor Daniel Tarullo says that new liquidity rules will give regulators just a little time — time they didn’t have during the 2008 meltdown — to assess the financial health of a firm, the Wall Street Journal reported today. Tarullo said that the new rules are necessary because the buffer they provide gives regulators “at least a bit of time” to judge the underlying health of the firm. In a crisis, it can be hard to tell if a firm is insolvent — and needs to be placed in bankruptcy or taken through new government-led resolution proceedings — or if it deserves emergency loans through the Fed’s discount window, he said. Tarullo said that banks holding more liquidity also reduces the need for the Fed and other central banks to give firms emergency loans. Big banks’ use of the Fed’s emergency discount window during the 2008 crisis sparked considerable controversy, and Congress placed new restrictions on its use in the 2010 Dodd-Frank law.
